As the owner of an independent financial advisory firm, you’re responsible for all aspects of your practice, including compliance, operations, marketing, and all other aspects associated with building, maintaining, and running a financial advisory firm. What happens when you come into work one day and find a notification that your firm is audited by the SEC?
Is the first reaction a little panic based on your current level of preparation? Have you dotted all the i’s and crossed the t’s?
While this scenario may trigger concern, there are ways you can prepare yourself ahead of time.
Since periodic examinations occur on a schedule or a complaint, it’s wise to establish a process that prepares your firm. As an independent financial professional, one way to prepare is to partner with an OSJ (Office of Supervisory Jurisdiction). An OSJ can significantly reduce various risk factors for you while helping you be better prepared if an audit occurs.
It is important to note this is just one facet of your relationship with an OSJ.
In today’s blog, we’ll look at how an OSJ can assist you in preparing for a regulatory audit.
What About an SEC Audit?
An SEC audit for financial advisors typically includes several comprehensive components:
Books and Records Examination: During an audit of your financial advisory firm, the SEC reviews financial records, client account statements, transaction records, compliance manuals, communications, advertising materials, and custody arrangements. They ensure adherence to regulatory requirements and verify the accuracy, completeness, and integrity of your firm’s documentation and processes.
Compliance Program Review: You will be examined based on your firm’s compliance policies and procedures, risk assessments, employee training, incident response, and documentation. Auditors want to be sure there is adherence to regulations, that the internal controls meet all requirements, and that an effective system of compliance oversight protects client interests and meets all regulatory standards.
Advertising and Marketing Materials: This includes reviewing all promotional materials to ensure you are not misleading potential and existing clients and that your firm is in compliance with all regulatory standards. This includes websites, social media, newsletters, and other forms of communication. Ratings, reviews, and testimonials are subject to in-depth reviews.
Client Disclosures: The audit will verify that all required disclosures have been made to clients, including information about fees, potential conflicts of interest, and your firm’s disciplinary history.
Custody of Client Assets: The SEC examines whether the firm follows proper procedures for safeguarding client assets, including segregation of funds, accurate record-keeping, and adherence to custody rules. They check for timely account statements, independent audits, and verification processes to protect clients’ assets from misuse or misappropriation.
Trading Practices: The agency scrutinizes your firm’s trading practices, including trade allocation, execution quality, fair pricing, and potential conflicts of interest. They assess the accuracy of trade records, compliance with agency guidelines, and the transparency of trading activities to ensure ethical and fair practices.
Financial Condition: During an SEC audit, the auditor will review your firm’s financial statements, capital reserves, accounting practices, and financial stability. They will assess liquidity, solvency, and your ability to meet obligations, ensuring financial integrity and protecting clients’ interests.
How an OSJ Can Help You Prepare for an Audit
The thoroughness of SEC audit procedures is evident from the descriptions described above. For solo practitioners, juggling practice management, client service, and audit preparation can be a daunting, time-consuming task.
Following are a few ways an OSJ can help prepare your firm for an SEC audit:
Regular Internal Audits: An OSJ can help with preparation to proactively identify and address compliance issues that may arise at your firm. By reviewing your policies, procedures, and practices, an OSJ can ensure their adherence to regulatory standards. This ongoing oversight helps your firm maintain accurate records, rectify discrepancies, and stay prepared for SEC audits, reducing non-compliance risk and enhancing overall operational integrity.
Compliance Training: An OSJ can provide you and your firm with updated training programs on regulatory requirements, helping you establish clear compliance protocols and conduct regular reviews. The OSJ also facilitates mock audits and ongoing education, ensuring you and your staff understand and follow SEC rules while enhancing your firm’s audit readiness.
Document Management: An OSJ can help you build and maintain an organized document management system. It will organize and maintain accurate records, update compliance manuals, and streamline filing systems. An OSJ verifies that all documentation meets regulatory standards by implementing regular internal reviews and audits, reducing non-compliance risk, and ensuring readiness for SEC scrutiny.
Marketing Review: An OSJ helps prepare for an SEC audit by reviewing all marketing materials to ensure compliance with regulatory standards. They verify that advertisements, brochures, testimonials, and online content are accurate, transparent, and free from misleading information. By maintaining records of all marketing approvals and conducting regular audits, an OSJ ensures that all promotional materials align with SEC regulations, reducing audit risks.
Trading Practices: An OSJ assists you in creating and overseeing trading practices to ensure compliance with regulatory standards. Regular internal reviews conducted by your OSJ can help identify and address discrepancies, ensuring that trading practices are transparent and in line with SEC regulations.
Why Partner with Evolution Financial Advisors?
Partnering with Evolution Financial Advisors (EFA) as your Office of Supervisory Jurisdiction (OSJ) can significantly bolster your preparation for an SEC audit.
We offer a robust compliance and supervision framework that ensures your firm meets all regulatory standards. Our team provides continuous training and updates for regulatory procedure changes, helping you stay current with all industry regulations.
One of the top benefits of working with EFA is our white-glove customer service. We focus on providing you and your firm with dedicated support for document management and trading practices, which are critical areas during an SEC audit.
EFA’s well-established systems and procedures streamline your operations, reduce manual errors, and ensure your records are audit-ready.
If you’re considering transitioning to an OSJ, we have built a seamless process that easily integrates you and your clients onto our platform while minimizing disruptions and potential compliance issues.
We also provide access to advanced technology solutions, enhancing your efficiency and client service capabilities. The strategic guidance and best-in-class practices position you as a thought leader, fostering client trust and confidence.
Ready to learn more about Evolution Financial Advisor’s services? Let’s connect for an introductory call.
